Hornbach Hldg Ag

Good morning, and welcome to our update call for the third quarter and first nine months of Honda Holding for the fiscal year 2023-24. My name is Angie Kelber, Head of Investor Relations. Today at 7 a.m., we published our financial results, comprising the period from the 1st of March to the end of November 2023. Welcome and good morning also to our CFO, Karin Dohn, who will be our host and presenter today, and will later also take your questions. Please note the entire conference call, including the Q&A session, will be recorded and made available with a transcript on the company's website afterwards. Please also take note of this disclaimer, which is valid for the entire presentation and for the Q&A session. And now I'm delighted to hand over to you, Karin, to give us an overview of the latest set of numbers.

Thank you, Antje, and a very good morning and a warm welcome also from my side. Earlier this year, we claimed an improvement of our gross margin and ongoing cost discipline. Our measures are now bearing fruit, and with our Q3 results, we are able to underline a sequential margin improvement and an effective cost management. Our merchandising team has successfully focused on their negotiations with suppliers, making sure that lower commodity prices are feeding through. We are very pleased that we managed to improve the gross margin by one percentage point. Our sales are in line with our expectations, also reflecting normal seasonality in Q3. In line with the overall macro environment and customer sentiment, we are observing softness in large projects and discretionary spending. However, customer frequency and engagement in smaller renovation projects remain on a satisfying level. Let me remind you that last year's sales were influenced by so-called panic purchases and heating components, and therefore bring a base effect to this quarter. During the 2023 calendar year, we were able to increase market shares in several of our key international markets, underpinning the resilience and the strength of our business. All in all, we're very pleased with our latest performance against the backdrop of the challenging trading environment. Given the results achieved in the first nine months, we confirm our guidance and expect sales and adjusted EBIT to come out in the mid to low range in line with market expectations. While we are navigating short-term challenges, we feel very confident about the underlying long-term trends in our industry. Structural trends such as energy efficiency and overall aging housing stock and demographic development will continue to drive DIY spend on home improvement. We steer the company by investing into these trends and by expanding our assortment and dedicated services to our customers. As we informed you a few weeks ago, we acquired Zinnovo, a startup that specializes in serial and standardized bathroom renovations with a special focus on barrier-free conversions. They've optimized the whole value chain to provide customers with a full service package from Oxford compilation to applying for grants and obtaining permissions from landlords through to professional implementation. Having such a great partner as Innovo on board provides a complement of our existing Do It For Me Services business and will help to attract more customers. By teaming up our partner networks, we are creating added value for Hornbach Group and achieve an enhanced ecosystem. Let me also highlight our progress in several ESG-focused initiatives. Rolling out our strategy to reduce our carbon dioxide footprint and switch to renewable energy, we have installed additional six photovoltaic systems in Q3. In total, we now operate 32 photovoltaic systems, running with a total output of almost 15,000 kWp, so kilowatt peak. Further rollout is going ahead in the next years. In addition, we are analyzing alternative heating systems for our existing stores. For example, we're currently connecting two more stores to district heating. On the same note, we are also helping our customers to reduce their carbon dioxide footprint by expanding our assortment of products for insulation and own energy generation. In some countries, we are now able to offer complete rooftop systems, and we also extended the choice of balcony solutions and have introduced small wind energy generators. Let us now take a deep dive in auto financials, starting with the recent sales developments. Our sales have been resilient in the first nine months with group net sales only slightly below the previous year's record level. Hornbach Baumarkt, including the online retail, performed slightly better than the group. A more challenging picture in Germany with minus 2.9% was balanced by a positive contribution from our international markets with an increase of 0.4%. As a consequence, on the Baumarkt level, The share of international business further increased to 51.7%. The positive development of customer frequency that we experienced in Q2 has continued into the third quarter. The trend of slightly reduced average ticket size keeps proceeding. On the positive side, customer engagement in smaller tickets is staying strong. Keep in mind, last year's sales were exceptionally driven by so-called panic purchases against the backdrop of impending gas shortages. This applies specifically to product categories such as electric heaters, power generators, or gas and wood. Throughout this year, we are seeing good demand in articles with our renovation assortments. More recently, with heavy snowfall in some regions, we have also seen strong demand for winter assortments. We are very pleased with the performance of our private labels, which represent an increasing share of sales. This shows that customers clearly appreciate our value for money offering across all ranges. We will continue to lean into product innovations that simplify the project, saving our customers time and money. Drilling down to country-by-country sales development, we see the following pictures. The aforementioned storm base effects and the difficult consumer environment impacted specifically our Q3 like-for-like sales at Hornbach Baumarkt. We are also starting to see deflationary effects towards the end of the quarter, where prices in some categories are normalizing from exceptionally high levels in the previous year. Amid the softer market development across the sector, Hornbach continued to increase market share in key international markets. We continue to see a tremendous development in our market position, specifically in the Netherlands, with an increase of 1.1 percentage points and a plus of even 1.9 percentage points in Czechia. Switzerland has also contributed positively to our market share gains. Let us continue with the e-commerce part of our business. The share of e-commerce in Hornbach Baumarkt net sales stood at 12.9% after the first nine months of 2023-24, still well above pre-pandemic levels. Customer engagement across our interconnected platforms in all regions remains on a high level. Customer accounts have increased significantly in the first nine months of the year by 15% to 4.1 million by end of November. More than half of e-commerce sales continue to be fulfilled through our stores, either through click and collect or our store delivery centers. This underpins the strength of our interconnected retail approach. We're able to leverage the value of our big box store network, which is serving as both point of sales as well as storage and fulfillment facility. Let us now take a closer look on the cost development. We are very pleased with the development of our gross margin, which increased by one percentage point in Q3. We are now seeing the results of successful negotiations with our suppliers over the last month to ensure that decreasing input prices are adequately passed through. We have also achieved a decrease in selling and store expenses in Q3 by strict cost management. Nevertheless, the cost ratios reflect some deleveraging from our top-line results. Personal cost increases due to higher wages could be limited by careful headcount management. We also continue to invest into technology and IT to foster innovation and increase process efficiency. Consequently, we have achieved the adjusted EBIT development as shown on the next slide. In Q3, the adjusted EBIT has further stabilized with only a slight decrease of 1.7 percent compared to previous year. This was driven, as said, by our gross margin improvement and our tight cost management. Regarding non-operating items in Q3, we recorded minor positive effects of 1.4 million, mainly from the sale of a smaller piece of land. We clearly stick to our ambition to actively manage gross margin as well as EBIT margin going forward. As mentioned, we expect gross margin improvement to continue as effects of lower moving average purchasing prices continue to flow through. We also aim to keep personal costs down by managing our headcount carefully and using natural fluctuation for reductions in some areas. Our successful inventory reductions had a significant positive impact on our operating cash flow in Q3, which improved from 25 million in last year's quarter to now 114 million. Let me remind you that the nine-month period working capital includes repayments from our reverse factoring program of $250 million that happened in Q1 this year. All in, we had an adjusted free cash flow of roughly $306 million after nine months. CapEx spend was at $149 million in nine months, of which 43% was spent on land and real estate, mainly for new stores. CapEx also includes the acquisition of Sinovo and some minor amounts for our marketplace and S4 HANA. For the full year 2023-24, we expect around $100 million of gross CapEx. Let us end the journey through our financials by looking at our balance sheet. Due to our successful inventory rightsizing, the consolidated balance sheet decreased in total by 6.7% to $4.4 billion. The equity ratio came in at 45%, further strengthened, and continues to represent a very comfortable level. Allow me to remind you that our balance sheet contains significant value from owned land and real estate, which amounts to roughly $1.8 billion as of November 30th. Real estate is conservatively accounted for at amortized cost. Our balance sheet underpins our robust financial position and contributes to our conviction in the resilience of our business. Let me emphasize again that we see our company very well positioned to capture median and long-term growth in the home improvement sector and that we are very confident about the overall development. However, global political, geopolitical challenges and European macroeconomic softness are here to stay short-term. With our everyday low-price strategy combined with strong-owned brands, we are a reliable partner for our customers for all their big and small renovation needs. We will continue to emphasize cost and inventory management while making targeted investments to improve operational efficiency and maintain our strong market position. And now I'm very pleased to take your questions.

Yeah, thank you, Carmen. We will now start with the Q&A session, and I would like to hand over to the operator. Please go ahead.